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Companies that want to outsource operations primarily partner with offshoring providers in the Philippines and India to achieve business goals and meet their needs.
Offshore outsourcing—or simply offshoring—is a business strategy wherein companies delegate their back-end processes, such as customer service, sales support, and help desk, to third-party service providers on another continent. That is offshoring if U.S. businesses delegate operations to the Philippines or India.
This article discusses 13 reasons companies engage in offshoring instead of other types of outsourcing, such as nearshoring and onshoring.
Why Do Companies Engage in Offshoring?
Companies engage in offshoring because of its proven benefits, such as access to reasonable service costs, enhanced online infrastructure, and digitally literate workforces. Let us explore the details below.
1. Reasonable Service Costs to Cut Operating Expenses
Offshore providers in the Philippines and India offer competitive service rates. These countries enjoy the lowest labor prices among the world’s offshoring destinations.
To illustrate, here are the average rates for offshore call center services by region:
|Offshore Call Center Services Rates
|North America (U.S. and Canada)
|$20 to $30
|$12 to $25
|$8 to $18
|$8 to $14
|$6 to $10
Based on the table, the client’s cost per call center agent is $64 to $112 daily (assuming they work eight hours) when hiring customer service outsourcing in the Philippines. In the U.S., daily rates are $160 to $240. When partnering with a Philippine provider, the client can save $96 to $128.
Consider the other operating expenses the company saves when transferring processes to the third-party offshore team:
- Office space, work supplies, and equipment. One reason companies engage in offshoring is that they no longer need to invest in additional computer systems, workspaces, and other equipment.
- Fixed compensation. The client no longer needs to employ full-time workers and pay for their regular salary, taxes, and benefits. It also saves on costly and time-consuming recruitment processes.
2. Sizeable and Digitally Literate Workforce to Support Operations
Companies engage in offshoring to access an ample labor supply. The Philippines, for instance, had nearly 48 million employable individuals and a literacy rate of 99.3% in 2021. Thousands of competent and qualified students graduate from educational institutions annually to join the labor pool.
India, another major offshoring player, had 360 million employable and skilled individuals in 2022. The country’s literacy rate was estimated at 78% in the same year, an increase from 73% in 2011. Almost eight out of ten Indians can read and write a simple message in more than one language.
But what do these figures indicate for clients? Businesses outsourcing to the Philippines, India, and other offshoring hubs receive access to a large pool of professionals. They can acquire different degrees of experience and talent to perform numerous tasks. Companies can also deal with challenging tasks more effectively when they have a diverse range of skills.
The expanding pool of literate Filipino and Indian workers is why companies engage in offshoring. It signifies that a shortage of workers is unlikely in the coming years. When the labor market is healthy, salaries tend to remain stable.
3. Enhanced Online Infrastructure for Efficient Communication
One of the reasons why companies engage in offshoring is to take advantage of improving digital infrastructure and affordable internet services. Online communications infrastructure gained ground in the Philippines. Eight primary internet service providers (ISPs) deliver fiber-optic and satellite solutions to users in urban areas for quicker and steadier connections.
These improvements increased the country’s internet speed. According to the Ookla Speedtest Global Index report, the fixed broadband median speed in the Philippines rose to 90.57 Mbps in March 2023 from 87 Mbps in November 2022. The mobile median speed for this period increased to 25.63 Mbps from 24 Mbps.
The government’s full support of digital infrastructure projects motivates companies to engage in offshoring. The current administration has fast-tracked the approval of building and installation permits. Tech companies and telecommunications providers can now set up fiber-optic and cellular towers to make online connections more reliable.
Similarly, India’s internet platform has improved. The country registered about 25 Mbps median mobile download speeds in December 2022, compared to 18 Mbps in November. It climbed to 26th in the global ranking under this category due to the deployment of 5G technology.
India will keep advancing its digital infrastructure via the Prime Minister GatiShakti National Master Plan. The national government set aside roughly $1.2 trillion for this megaproject to accelerate the implementation of digital infrastructure. The plan includes provisions for expedited approval of right-of-way applications to speed up infrastructure construction.
4. High English Fluency for More Effective Customer Interaction
Among the reasons why companies engage in offshoring is that the Philippines, India, and other popular outsourcing destinations have a large population of proficient English speakers. In the EF English Proficiency Index (EF EPI), the Philippines ranked second in Asia and 22nd globally, while India ranked 6th and 52nd, respectively.
English is the second official language of the Philippines and India, taught from primary to tertiary education.
Third-party teams showing at least above-average English fluency are why companies engage in offshoring. This capability fosters easier customer communication and better client collaboration. English-speaking clients and consumers can clearly understand them. So, the agents can process transactions and resolve service issues with low language barriers.
Filipino professionals can converse in English with a neutral tone. They are also capable of both informal and formal English. The intonation of the Filipino English accent differs from that of a native speaker. However, it is simpler to comprehend and listen to than for other non-English speakers.
The English language skills of offshoring teams make business process outsourcing (BPO) in the Philippines more appealing. BPO companies that depend on virtual assistance, customer support, and other back-office functions profit from these skills.
5. Compatible Cultures for Greater Customer Relationships
Cultural commonalities that increase the success of outsourcing operations are one reason companies engage in offshoring. Filipinos, Indians, and Americans share many social standards and conduct, such as regard for elders, ethnic variety or language diversity, and close family connections. These shared cultural traits make communication easier.
The Philippines was a U.S. colony for 48 years (from 1898 to 1946) before becoming independent, while India was a British colony for 89 years (from 1858 to 1947). During their rule, the U.S. and Britain helped develop their colonies’ local governments, build domestic economies, and institute education systems.
Western lifestyles, including movies, music, and food, were also introduced during the occupation.
The Philippines and India share the following features with the U.S.:
- Government, commercial, and legal papers and records are in English.
- The U.S. and the Philippines have executive, legislative, and judicial branches. The UK and India have parliamentary forms of government.
- Most undergraduate and postgraduate degrees use English for instruction and written exams.
- Many signs, poles, and billboards in public and commercial areas are in English.
Close cultural similarities and solid English skills are why companies engage in offshoring. The third-party team can talk to Americans about anything. These cultural and linguistic traits harmonize Filipinos and Indians with Western societies, giving them a competitive edge over other nations in performing excellent BPO services.
6. Supportive Governments to Spur Offshoring Operations
Offshore governments strongly supporting the industry are why companies engage in offshoring. They acknowledge how vital the industry is for bolstering taxes, employment, and new technologies for economic growth and business stability.
For instance, BPO providers in the Philippines significantly benefit from the tax and business privileges the Philippine Economic Zone Authority (PEZA) offers. Below are some perks:
- Extension of corporate income tax exemption of up to eight years
- Only 5% gross income tax is due when this period expires
- Import duty exemption and aid in the import-export procedures
In India, outsourcing- and investment-friendly regulations motivate companies to engage in offshoring. The information technology (IT) sector is its main priority. The government initiated the National IT Task Force, which envisions the country as an IT superpower in the future.
The Indian government also introduced the IT Act of 2000, which deals with cybercrime and e-commerce. Additionally, it launched the 2015 Digital India campaign to make government services accessible electronically to the wider population.
Moreover, the Indian government waives particular startup taxes for the first three years of establishment and provides a patent filing reimbursement of up to 80%.
7. Stable Economy to Sustain Strong Business Optimism
The continued economic stability of outsourcing hubs such as the Philippines and India is why companies keep engaging in offshoring. The success lies in their governments’ effective policies that enhance international debt payments, dollar reserve expansion, government expenditure, and inflation control.
The Philippine economy increased no less than 6% annually in real gross domestic product (GDP) from 2010 to 2019. It grew 5.6% in 2021, a major turnaround from 2020, when GDP fell by -10% due to the pandemic. The local economy rose 7.6% in 2022. GDP indicates the overall worth of goods and services generated in a country over a specific time frame.
Similarly, the Indian economy registered an average GDP growth rate of 6.2% over the past 30 years. The International Monetary Fund reports it surged to 9% in 2021 before leveling off to 6.8% in 2022. Reports expect economic growth from 2023 to 2028 to be within the 6% range. India’s outsourcing industry is a main growth driver.
A real GDP of 6% is exceptional and indicative of a robust economy, translating into solid consumer buying power, business investments, and public service spending. In a nutshell, continuous GDP growth benefits the majority financially and materially.
8. Flourishing the BPO Industry for Continued Success
The outsourcing sector’s continued stellar performance is why companies are still engaged in offshoring. It keeps evolving and innovating, providing new opportunities and better support for foreign companies and investors. The BPO space is resilient; the industry remained active via remote work amid the pandemic’s health protocols.
The first call center operations in the Philippines started in the early 1990s. In less than 20 years, it has become the world’s BPO capital, specializing in customer support. Filipino call center agents excel at managing inbound and outbound calls from any customer type. Demand from e-commerce and fintech companies has been its main growth driver since the pandemic.
Similarly, India is still at the forefront of outsourcing due to its continued dominance in IT support and related services. It remains the most sought-after IT and software outsourcing hub, beating Latin American, Eastern European, and Asia-Pacific rivals. Its almost 5 million English-speaking technical professionals are why companies engage in offshoring IT services.
According to the National Association of Software and Services Companies (NASSCOM), India’s trade group for the IT and BPO sectors, not less than 80% of U.S. and European companies pick India as their outsourcing hub. About half of Fortune 500 companies assign software development to Indian software outsourcing providers.
9. Flexible Work Shifts to Ensure Constant Customer Service
Companies engage in offshoring because third-party offshore teams are willing to work in shifts regardless of the processes. They can work at night, on weekends, on holidays, and across time zones to assist customers, users, or clients wherever they are. Rotating shifts and weekend work are standard procedures in the BPO industry.
Companies engaged in offshoring take advantage of round-the-clock customer service. For instance, a U.S. business can have in-house staff working during the day and a third-party crew carrying on at night, resulting in 24/7 operations.
24/7 operations enable employees and third-party team members to more effectively and promptly manage customer or user issues, tickets, and other concerns.
Other benefits of 24-hour service include:
- Obtaining clients from various time zones. Companies engage in offshoring to be open for service anytime, anywhere in the world. They gain entry into foreign markets when they ensure continuous operations.
- Building a competitive edge. Nonstop assistance helps businesses enhance their credibility and gain an advantage over competitors.
- Providing multiple communication channels. Ongoing customer, technical, or sales support broadens consumer interaction. Companies engaging in offshoring can deploy various communication platforms, integrating chatbots, live chats, and messaging applications.
10. Reduced Legal and Management Obligations to Save Money
Decreased legal and administrative responsibilities are why companies engage in offshoring. Establishing a branch in a foreign country means the company must follow and stay updated with different (and sometimes complex) public policies, compliance regulations, tax codes, labor laws, and administrative standards.
Obtaining offshore BPO services protects the company from direct staff hiring risks or legal consequences. Some countries, such as the Philippines, have labor codes permitting workers to organize labor unions. When offshoring processes, the service provider handles staff-related concerns, minimizing the client’s exposure to management and liabilities.
More significantly, the third-party provider assists with team supervision. It controls and tracks staff behavior, absences, and individual income taxes. The client simply reads and evaluates the BPO partner’s periodic reports. This ease is one reason why companies engage in offshoring.
The additional advantages of outsourcing associated with human resources (HR) include:
- Numerous connections. The BPO provider has extensive access to the local talent pool, enabling clients to choose the finest applicants for the roles.
- Skilled professionals. The third-party provider employs HR experts to oversee activities and employment-related challenges. It also organizes programs to promote multiculturalism and maintain harmonious working relationships.
- Cost savings. Companies are not required to expand their budget to spend on additional workspaces, software, office supplies, computers, and equipment.
11. Healthy Work Qualities for Maximum Efficiency and Productivity
Third-party professionals’ favorable work attributes are why companies engage in offshoring. Consider the following positive traits:
- Service-oriented. This trait distinguishes offshore BPO companies from their global rivals. Third-party teams, especially Filipinos, are naturally interested in knowing and serving people. Filipino workers are known for their warmth and hospitality. Offshore professionals are mostly team players, enabling them to deliver first-rate service.
- Dedicated and resourceful. Another reason why companies engage in offshoring is to tap the services of dynamic and creative local talent. Indians, Filipinos, and other offshoring professionals treat their work seriously and their colleagues respectfully. They improvise to resolve challenging work issues.
- Respectful. Third-party workers demonstrate their warm respect to officers, leaders, and other superiors by addressing them as “sir,” “ma’am,” or “boss.” This indicates they have the necessary work discipline, dedication, and commitment to accomplish tasks and objectives.
- Optimistic. Third-party teams, particularly Filipinos, are inherently cheerful. They typically look at the bright side of a problem. A positive work trait improves output, collaboration, and customer relationships.
- Reliable. Having dependable and trustworthy workers is why companies engage in offshoring. They can accomplish their jobs with minimal guidance after settling into their duties. They are swift learners with energetic personalities and active listening abilities, making them solid staff members.
12. Core Business as the Primary Focus to Gain a Competitive Edge
Being able to pay more attention to their core competencies is why companies engage in offshoring. When delegating low-value processes, in-house staff and managers can focus their time, money, and effort on the core business. Core business tasks include launching or introducing new products or services, implementing sales plans, or broadening the market.
When immersed in core competencies, companies engaged in offshoring can diversify their products or services or expand their market reach. The goal of concentrating on the primary business is to gain and keep a competitive edge over rivals. Delegating secondary activities to offshore teams can help the company realize this objective.
Having a competitive edge leads to increased income. With improved revenue, the company can:
- Put money into cutting-edge technologies to assist in expediting procedures, boosting output, or keeping up with the rest of the market.
- Generate, develop, and market new goods and services to provide additional alternatives to customers.
- Extend market reach more quickly to enhance income streams and reduce reliance on present markets.
- Invest more in staff training and upskilling for excellent performance and efficiency.
- Develop or update existing product and service quality to attract more consumers and increase sales.
- Offer all workers better incentives and benefits for stronger morale and lower attrition.
- Provide higher-quality customer service to increase consumer satisfaction and brand loyalty.
13. Scalable Operations for Improved Cost Control
The ability to scale assigned processes based on business conditions or requirements is why companies engage in offshoring. Such adaptability enables the firm to better manage operating expenditures.
The BPO firm provides the client with the exact number of remote workers they need to minimize overspending. It also addresses staffing issues and concerns. The service partner can lower the third-party team size without terminating members. Instead, they will likely transfer the contractors affected by the downsizing to new or different clients or operations.
Additionally, the BPO provider can scale up the team’s size to cope with a growth in task, call, or transactional volume. It can field extra agents during active periods, including marketing and promotional events, major sales campaigns, and holidays. Its specialty is meeting increased demand by dispatching additional offshore agents.
In contrast, operating costs remain constant when the internal team works on the processes. Full-time, regular staff salaries stay the same regardless of the business conditions.
Scalability also allows companies to distribute tasks between the in-house department and the offshore team. The internal team can focus on high-value and specialized activities, while the third-party professionals handle repetitive processes. This is a reason why companies engage in offshoring.
The Bottom Line
Companies must learn the pros and cons of outsourcing to the Philippines, India, and other outsourcing destinations to develop and execute a robust offshoring plan.
Some potential offshoring issues include sharing sensitive data with the service provider and shouldering costs for unforeseen yet necessary services.
Acquiring the various offshoring advantages increases output, efficiency, and revenue. The benefits outweigh the possible risks that offshoring poses.
Let’s connect if you need to know more about why companies engage in offshoring.